Kirchnerite Cabinet faces many challenges

Cabinet chief Jorge Capitanich in Government House yesterday where the new plan to watch supermarket prices was announced.

By Marcelo FalakGuest columnist

Will the new year see the government willing to make costly political decisions?

After recovering her health and before isolating herself again, supposedly voluntarily, President Cristina Fernández de Kirchner revamped her Cabinet, appointing Axel Kicillof as Economy minister and successful Chaco Governor Jorge Capitanich as Cabinet Chief. All three were aware at the time of the urgencies imposed by the economy on the Kirchnerite administration but, in the meantime, another agenda, even more demanding, was about to explode below the surface.

The combo that justified the Cabinet prominence of Kicillof and Capitanich was well-known — a dangerous fall in international reserves, fast peso appreciation and growing inflation. And, besides that, major political weaknesses such as the recent electoral setback, the President’s sickness and her legal inability to opt for another term.

All those economic troubles were addressed, independently of the accuracy and sufficiency of the answers given. The loss of reserves resulted in another change, the replacement of Mercedes Marcó del Pont with Juan Carlos Fábrega at the Central Bank, which brought some changes in policies — a rise in the percentage slapped on credit card expenses abroad, the recreation of mechanisms to obtain dollars on capital markets (as a way to contain the illegal rate), incentives to soy exporters to change their foreign currencies into pesos, and the arrival of some foreign investments in Vaca Muerta oil fields and money borrowed by YPF. The expectation is to keep the reserve level above 30 billion dollars during this troublesome summer and to start receiving the “rain of dollars” from farm exports as from March and April.

The peso appreciation was countered with an acute acceleration of the pace of devaluation, which, as experience shows, fed inflation. To the latter, the answer was a price agreement whose results will be in the best case short-term as a way to change expectations and reduce wage claims by the unions. Time is something which never abounds.

But, unexpectedly, a new set of problems broke out in a torrid December.

The police protests in several provinces showed up a government with insufficient reflexes. If the political calculation was not to nationalize that wave but to reduce it to provincial boundaries, in the first instance in Córdoba, reality proved different. The lack of a stern reaction caused a domino effect which polluted the entire country, showing police forces acting in open challenge to the civilian authorities and, even more dangerously, achieving well-above-average wage rises which will set a precedent for the next negotiations with state workers’ unions. A threat to provincial budgets.

César Milani’s formal approval as the Army chief-of-staff, despite the strong doubts derived from his actions during the military dictatorship, eroded one of the finest achievements of Kirchnerism: its strict adherence to the human rights cause. It is true that the repeal of the impunity laws and the prosecution and imprisonment of hundreds of killers and torturers are achievements impossible to abolish but the ethical concession made by Mrs. Kirchner in that case, for reasons until now far from clear, bothered not a few of her more convinced supporters.

Finally, 2013 finished amid power outages which exposed the inefficiency of private companies as much as the state’s (that is the Kirchnerite government in the last decade of Argentine history) lack of control.

In times when economic shortages impose a mix of devaluation and a rise in oil and transport prices (something very similar to an orthodox austerity policy), a progressive political agenda is a good way out for governments that claim to be centre-left. But an inappropriate official response to the police challenge, as well as the absence of hints for a radical reform of security forces often associated with the worst of the crime they are supposed to fight, deprives the Casa Rosada of a good progressive banner to raise in order to regain former supporters.

It is possible to say something very similar about the Milani issue, which makes the step taken much more difficult to understand.

The grid collapse in the metropolitan area exposed once again the failure of a bid made several times by Kirchnerism: stiff official regulation of consumer fares and utility rates, state investment and limited private administration of the activity. This scheme crashed in oil production, transport and, now, in electricity. In the two former activities the answer was to sweep away the private companies, to nationalize them; in the latter case that may prove harder, given the fact that the government budget does not suffice any more to face the massive investment necessary to put the system in good shape. According to some experts, that bill would total 2.5 billion dollars.

An eventual decision to rescind the contracts of Edesur and Edenor would also complicate again the country in the international courts of law (mainly the World Bank’s CIADI arbitration body), just when the government wants to finish old litigation in order to regain access to foreign financing. All this, while not ruling out completely the possibility of a nationalization, constitutes powerful limits to a progressive-style exit.

The New Year is, as seen, very challenging for Kirchnerism. If bold and risky actions are required, this is the time to pay all the costs eluded for years, an attitude which explains much of the current cross-roads. To delay them once again will not solve the problems and would also leave possible (and more painful) solutions much nearer the 2015 elections.

That could be too late for the dream of finding a Kirchnerite succession for Mrs. Kirchner. Will her expected return from her low-profile vacation in El Calafate bring the surprise of the recovery of political initiative? We will know soon enough.